Sinofert Holdings Limited: Urea Distribution Planning
(2 pages of text)
Sinofert Holdings Limited, the largest comprehensive fertilizer enterprise in China, is trying to improve the profitability of its urea business. The company has invested a great deal of time and money but still reported losses in 2007 and 2009 and only a small profit in 2008. Sinofert both manufactures urea and purchases it from external suppliers, as well as distributing it to the provinces. Manufacturing costs, transportation costs, market prices, demand forecasts and manufacturing constraints are all known. An optimal distribution plan using linear programming can be compared to the plan derived by Sinofert management. Substantial profitability increases are shown to be possible, although the optimization reveals some issues with contract constraints. If the company is to make its urea business profitable, it needs a fresh look and a change in the way of doing business. The company’s chief analytics officer has been asked to look at the urea business and to provide recommendations to increase profitability.
This case presents a real-world implementation of the transportation problem. Sinofert distributes fertilizer (urea) from several sources in China to several provincial markets. Manufacturing costs, transportation costs, market prices, demand forecasts and manufacturing constraints are all known. An optimal distribution plan can be found using linear programming and compared with the plan derived by Sinofert management. Substantial profitability increases are shown although the optimization reveals some issues with the constraints as presented.
Agriculture, Forestry, Fishing and Hunting
China, Large, 2009
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